Concerned that high health insurance costs could undermine federal health reform, Office of Policy and Management Secretary Benjamin Barnes on Thursday suggested changing state law to limit health insurance carriers' administrative costs and profits beyond what federal law requires.

The board of the state's health insurance exchange -- the authority that oversees a health insurance marketplace being created as part of health reform -- agreed in a unanimous vote to recommend that legislators do so.

Barnes said the change would lower health insurance costs. But Keith Stover, a lobbyist for the Connecticut Association of Health Plans, warned that attempting to reduce administrative costs could carry consequences for the state.

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The change Barnes and the exchange board are seeking involves lowering the proportion of premium dollars that insurers could spend on administrative costs, including profits, rather than on medical care or quality improvement efforts. The percentage of premium dollars spent on medical care and quality improvement is called the "medical-loss ratio."

The Affordable Care Act -- the health reform law known commonly as "Obamacare" -- already sets a minimum medical-loss ratio that limits what health plans can spend on administrative costs. Plans serving large groups can only spend 15 percent of premium dollars on administrative costs, while those sold on the individual and small-group markets are limited to 20 percent.

Barnes' proposal would go beyond that, requiring that administrative costs for insurance plans on the individual and small group markets also be limited to no more than 15 percent of the money collected in premiums.

The proposal was intended to lower premiums at a time when many people are concerned about how much insurance will cost beginning next year, when many provisions of Obamacare take effect.

"I'm deeply concerned that the success of the Affordable Care Act nationally and in Connecticut will be undermined if there is rate shock that so many people have called on," Barnes said.

Barnes is the budget director for Gov. Dannel P. Malloy, part of an administration that some health care advocates say has been too cozy with the insurance industry. Barnes acknowledged that the move could have adverse consequences for insurance carriers and meet with their opposition.

When he proposed the idea at an exchange board meeting, Barnes hadn't yet spoken with legislators about the idea, but said he would do so later in the day. There are a number of bills on similar topics that could be amended to include the change, he added.

State Healthcare Advocate Victoria Veltri, an exchange board member, supported the idea. "I think it's very aggressive," she said. "I think it's in line with an approach that's consumer-oriented."

Since Obamacare became law in 2010, many states have taken the opposite approach, seeking federal permission to allow insurance carriers to maintain higher levels of administrative costs. The argument for doing so was that insurers in those states were far from meeting the medical-loss ratio requirements of the new law, and that requiring they comply could lead them to leave the state -- a concern in places where there are very few insurance companies that dominate the market. Connecticut never sought permission to delay implementing the new medical-loss ratio requirement.

Insurance plans that fail to meet the mark are required to issue rebates to customers.

Stover said concerns about how much insurance will cost next year are legitimate. But he said the higher rates will reflect medical costs, not insurers' administrative expenses, and that targeting administrative costs wouldn't address the real issue.

The proposal is "a significant problem," Stover said, adding that it caught him by surprise.

"I think that the industry would feel that such a move was fundamentally and directly adverse to the health insurance industry in Connecticut," he said.

The insurance industry has been warning that consumers will face a "rate shock" because there will be new limits on how much insurers can vary rates depending on a person's age, sex, health status and other factors. Critics have called those claims overstated and accuse the industry of trying to scare people about the law.

The exchange, known as Access Health CT, is a marketplace that individuals and small businesses will be able to use to buy health insurance beginning in October. People who get federal subsidies to buy their insurance -- part of federal health reform -- will have to buy their health plans through the exchange, and people who would otherwise shop for coverage through the state's existing individual or small-group insurance markets will have the option of using the exchange.

Barnes said the medical-loss ratio proposal would most likely apply to all insurance plans sold in the state, not just those sold through the exchange.

Barnes also proposed -- and the board agreed with -- recommending that the legislature pass a law giving the Connecticut Insurance Department the authority to regulate small group indemnity plans. It currently doesn't have that authority.